Saratoga Springs Housing Authority criticized in audit

SARATOGA SPRINGS -- The Saratoga Springs Housing Authority Board of Commissioners needs to exercise more oversight of the authority's financial operations and its top executive, according to an audit by the state Comptroller's Office.

"We found there was inadequate oversight" on the part of the volunteer commissioners and "overall concern over spending controls," Comptroller Thomas DiNapoli said.

The audit found no irregularities or improprieties, however, in the relationship between the city Housing Authority and the Saratoga Affordable Housing Group. Deputy Comptroller Steve Hancox said the audit found no evidence of commingled funds between the two organizations and pointed out that housing authorities are "encouraged to form not-for-profits."

The audit -- which examined the time period from July 1, 2010, to Feb. 21, 2012 -- also did not find nepotism at the Saratoga Springs Housing Authority, contrary to public criticism about the employment of Executive Director Edward Spychalski's adult children.

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The audit determined that Spychalski's use of a vehicle provided by the Housing Authority was not inappropriate, but questioned some aspects of this job perk, including having it serviced by his brother and under-reporting his personal mileage.

Members of the Saratoga Springs Housing Authority Board of Commissioners were provided with advance copies of the draft audit and were interviewed by the auditors about their thoughts on it. In addition, the board wrote a five-page response to the audit, which agreed with some of the findings while questioning others.

"We feel vindicated to the degree that the audit found no fiscal mismanagement or inappropriate use of public funds," the response stated.

The executive director's five-year rolling contract might mean that the Saratoga Springs Housing Authority would have to pay him four years' salary if he decides to quit.

The board does not exercise control over travel expenses, and the audit cited at least $12,000 in questionable expenditures over the last two years.

The board does not exercise enough control or oversight over payments made to vendors, including nearly $450,000 in payments made "without any review of board members."

The executive director's vehicle use was in accordance with the contract, but he underreported his personal mileage of the vehicle to the IRS, reporting 20 miles a day instead of 32 miles.

The Housing Authority accountant's salary was comparable with similar positions in the city and elsewhere.

While the accountant handles the entire payroll with little or no oversight, there are no deficiencies in her payroll records.

The Saratoga Springs Housing Authority has been scrutinized by the media and the public for the past year over a number of issues. Some of those concerns were addressed by the audit, while others were not.

The audit was requested by Mayor Scott Johnson amid criticism by the City Council for, among other things, Spychalski's $145,000 salary, the five-year rolling contract, the Housing Authority's handling of a bedbug infestation in the Stonequist Apartment building and allegations of nepotism, inappropriate vehicle use and a murky relationship with the Saratoga Affordable Housing Group. He did not return calls for comment by press deadline.

"Taxpayers and tenants of the Housing Authority shouldn't have to question if their money is being used appropriately," DiNapoli said. "Officials should immediately address the financial risks uncovered in this audit and commit to improving the tone at the top as they move forward."

Citing the need for financial controls, for example, auditors sampled 75 vendor payments totaling roughly $450,000 made during the time period and found that the claims were not sufficiently itemized and "nearly always paid without any review by board members."

DiNapoli said the Comptroller's Office can make recommendations but cannot force the Saratoga Springs Housing Authority to make changes. However, he said they could return for a follow-up audit and the federal Department of Housing and Urban Development, which funds the city Housing Authority, could force change.

Currently, no vendor payments less than $100,000 requires board approval.

The audit deemed about $12,000 out of the $46,000 spent on travel between 2010 and 2012 to be "questionable" and recommended it be repaid.

The report outlines how the chairman of the board, executive director and clerk traveled to conferences in Washington, D.C.; Phoenix; New Orleans; and Fort Lauderdale, Fla.

They often went to the destinations days before they were supposed to and while they often, but not always, paid for their own hotel rooms, they charged the Saratoga Springs Housing Authority for rental cars, meals and other expenses.

The audit found a number of discrepancies between what Spychalski and board members told auditors to justify those travel expenses. For example, the auditors say Spychalski claimed he and his spouse flew to Las Vegas rather than Phoenix, where the conference was, because they couldn't find a direct flight to Phoenix. However, the auditors found Spychalski initially purchased a direct flight to Phoenix, but then canceled it in favor of a flight to Las Vegas.

The conference, in that case, lasted four days, but Spychalski and then-Chairman Dennis Brunelle stayed a week. They paid for their own hotels while they stayed in Las Vegas but charged the Housing Authority for their eight-day car rental, meals and incidental expenses throughout the trip.

Executive compensation

With a 2011 annual salary of about $152,000, including bonuses, Spychalski is paid more than 93 percent of the country's housing authority directors, the audit found. The highest-paid employees in 75 percent of housing authorities in New York and New Jersey make less than $117,000.

In the 2012 fiscal year, which began July 1 at the Saratoga Springs Housing Authority, Spychalski's salary was about $145,000. His salary was frozen along with all of the other employees' salaries.

The auditors also surveyed housing authorities in Plattsburgh, Troy, Schenectady and Albany. The highest-paid director of those four authorities is Albany's director, who makes $139,000. The audit points out, though, that each handles "significantly more tenant rentals" than the Saratoga Springs Housing Authority, which oversees 419 housing units, 90 of which only require paperwork and no maintenance.

The other housing authorities surveyed handle far more units -- 795 in Plattsburgh, 2,125 in Troy, 2,390 in Schenectady and 4,700 in Albany.

According to city Housing Authority policy, Spychalski's salary should be comparable to a Saratoga Springs City School District principal. The highest-paid principal in the district made $127,219 in 2011.

The Department of Housing and Urban Development is also proposing a salary cap for the current fiscal year that would limit the Saratoga Springs Housing Authority director's salary to $126,000.

The audit also found that Spychalski's rolling five-year contract exposes the Housing Authority to "substantial financial liabilities" because if he decides to quit, the authority would need to pay him four years' salary -- approximately $580,000. The audit recommends that "in future negotiations, the board should align the director's salary with industry comparables and federal requirements."

The Saratoga Springs Housing Authority board's response said they will be reviewing the comparability study and contract, which it defends as routine in the industry asking, "Does HUD even have the power to enforce salary caps?"

Director's vehicle

Spychalski, by contract, has access to a vehicle paid for by the Saratoga Springs Housing Authority. The personal use of the vehicle is a job perk for which he is required to pay taxes as though it is income; by under-reporting the mileage he essentially under-reported his income to the IRS.

The audit found that Spychalski routinely under-reported his personal use of the vehicle to the IRS, claiming that his commute from his home is 20 miles round-trip when it is actually 32 miles.

Overall, though, the audit found his vehicle use was authorized, in compliance with his contract and not unusual for housing authority directors.

The Saratoga Springs Housing Authority was criticized, however, for having maintenance of the vehicle done from 2002 through July 2011 by J&M Auto, a Watervliet company owned by Spychalski's brother. During the audit period, the Housing Authority paid $2,600 to J&M Auto. The audit deemed the price reasonable, but that the relationship violated the Saratoga Springs Housing Authority's ethics policy.

The commissioners' response said the use of Spychalski's brother's mechanic shop was a "moot point" because it was terminated when the board became aware of it and it had been instituted by the previous director, before Spychalski's promotion to the job.

SAHG and nepotism

DiNapoli said the review of the Saratoga Springs Housing Authority's relationship with the Saratoga Affordable Housing Group "certainly wasn't an afterthought," despite it being in the appendix.

"We looked at it in the same depth as anything else," Hancox said.

The audit cited no concerns about the Housing Authority's role with the Saratoga Affordable Housing Group, a separate nonprofit created by the Housing Authority.

As for the alleged nepotism within the Saratoga Springs Housing Authority, the audit found that Spychalski's hiring of his daughter in two different positions -- as a part-time clerk and then "Housing Authority assistant" -- and his son as a laborer complied with Civil Service Law. His son's responsibilities as a "security guard" had potential for out-of-title responsibilities, but he resigned in February 2012.

The audit cited "confusion" on the part of the Saratoga Springs Housing Authority board about why a waiver for Spychalski's daughter's employment was not submitted until well after she was hired for the position.

Bedbugs

The audit also touched on the Housing Authority's response to bedbugs in Stonequist Apartments, the catalyst for much of the controversy that later surrounded the authority and the eventual audit.

The first bedbugs were reported in September, according to both the audit and Saratoga Springs Housing Authority officials, but residents who lived at Stonequist during the infestation say they reported the bedbugs earlier than that.

The report concluded that "Authority officials did not assess the extent of the infestation or bring in a professional exterminator as soon as they should have," but pointed to a lack of guidance from Department of Housing and Urban Development on how to deal with the issue. It cited confusion and a lack of experience with bedbugs and their treatment as reasons the authority did not move quickly on the issue.

DiNapoli's press release states that the Housing Authority "failed to assess the extent of a widespread bedbug infestation." In December and January, authority officials including Spychalski and Brunelle said only a "handful" of cases had been reported at the Saratoga Springs Housing Authority. By February, exterminators said about a quarter of the 176 rooms in the building had bedbugs.

The report concluded that "Authority officials did not assess the extent of the infestation or bring in a professional exterminator as soon as they should have," but pointed to a lack of guidance from HUD on how to deal with the issue. It cited confusion and a lack of experience with bedbugs and their treatment as reasons the authority did not move quickly on the issue.

The Housing Authority board's response states the issue has been "inflamed by sensationalistic treatment by both the broadcast and print media, including misleading headlines and a seeming aversion to seeking hard facts from the very beginning."

The group disagreed with the conclusion of auditors, saying it is "both logically and factually wide of the mark."

The auditors, though, responded that the treatment would have been better earlier, and "at least one board member stated to us that, in hindsight, the authority should have brought the professionals in sooner."